The Financial Conduct Authority (FCA) is to argue providers have a duty to vet investments before they can enter their self-invested personal pensions (Sipp) in court this autumn.
FTAdviser has seen court documents submitted by the regulator to the Sipp provider Berkeley Burke's judicial review which is to enter the courts this autumn.
In the documents the FCA argues acquiring the assets in a Sipp forms part of operating the Sipp and under section 22 of the Financial Services and Markets Act 2000 establishing and operating a Sipp as well as buying and selling securities are regulated activities, therefore Principles 2 and 6 apply.
This means Sipp operators must conduct their business with “skill, care and diligence” (Principle 2) and “pay due regard to the interests of its customers and treat them fairly” (Principle 6).
Furthermore, the FCA stated the idea the client is responsible for their own decisions, for instance in an execution only setup, is only one of several factors the regulator takes into account when making and applying its rules.
“It cannot be relied on directly as between a firm and a consumer as a ground for either setting out any obligation on, or any limitations on the obligations of firms such as Sipp operators,” the FCA stated.
Berkeley Burke’s long standing battle against the Financial Ombudsman Service (Fos) is due to be heard in October.
The Sipp provider is fighting a decision from 2014, in which the ombudsman ruled it had to compensate a client after it failed to carry out adviser-style due diligence on his investment.
The firm had already taken legal action following the original ombudsman decision of 2014.
Berkeley Burke maintained it had not given any advice to Wayne Charlton therefore it was not liable for the investments within his Sipp.
The regulator has already presented its views at a similar hearing in March, in a case brought by a client of Sipp provider Carey Pensions, which is currently awaiting judgement.
In the case Carey argued it was not responsible for the client’s failed investments as he had invested on an execution-only basis and signed a contract saying it was his choice to invest.
Carey even claimed it had warned Mr Adams about the specific risks to his pension but he nevertheless instructed the Sipp firm to carry out the pension transfer.
But the FCA maintained the Sipp provider could not distance itself from its customer care obligations.
If successful, the case could have profound effects on the Sipp market and lead to a mass wind up of Sipps, Dentons Pension Management warned.
Speaking at an event in March Denton's director of technical services, Martin Tilley, said: "This case is quite critical, if it goes the wrong way we could see significantly fewer full Sipp providers in the marketplace than we currently have.
"Because depending upon how the Sipp providers' professional indemnity insurance stacks up and their capital adequacy situation, we could well see some organised wind-ups going on.”